BHP losing iron grip

Stellar streak could be fading

By Barry FitzGerald and Peter Ker

20 October 2011 — 3:00am

FRESH doubts about the ability of iron ore prices to hold on to bumper levels put a lid on BHP Billiton's share price yesterday despite the group reporting better than expected production for the September quarter.

BHP shares closed steady at $36.40, which did represent some recognition of the better than expected production figures as it compared favourably with the $1.17, or 1.7 per cent, share price fall to $65.08 suffered by fellow diversified miner Rio Tinto.

BHP's production figures are expected to result in only minor adjustments to the market's profit expectations for the 2012 June financial year.Credit:Erin Jonasson

But with iron ore prices now down by 17 per cent since early September - and copper prices taking a bigger beating - the market is beginning to wonder whether the stellar profit run of the diversified miners is over.

As it is, BHP's production figures are expected to result in only minor adjustments to the market's profit expectations for the the year to June 30, 2012.

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That means that after completing its first quarter of the new year, BHP remains on track to post a full-year profit of about $US24 billion.

While higher than BHP's previous record for corporate Australia, such a result would represent a big slowdown in profit growth.

BHP's 2010-11 profit was $US21.6 billion, up from the global financial crisis-affected profit of $US12.4 billion for 2009-10.

The benefits of the heavy investment in expanding its Pilbara iron ore production are beginning to pay off for BHP.

Its production from the region rose to 43.05 million tonnes in the September quarter from 33.99 million tonnes in the previous corresponding period. Shipments rose to a record annualised rate of 173 million tonnes for the quarter, well up on expectations for an annualised rate of 165 million tonnes.

Production by the petroleum division rose 19 per cent from the previous corresponding period to 51.4 million barrels of oil equivalent.

Much of the increase was expected as BHP spent $US20 billion earlier this year pushing into the USshale gas industry with the Fayetteville and Petrohawk acquisitions.

Gas prices have weakened by more than 10 per cent since the last of BHP's acquisitions and are roughly half of what most analysts believe is required to generate the returns required to justify the massive development expenditures in the industry by BHP and others.

BHP's December-half profit report to be released early next year will give the first real indication of whether the shale gas interests provide the same sort of ''quality'' earnings that the division's other oil and gas production interests deliver.

Away from the production report, BHP is searching for a new head of public affairs after former Australian Labor Party heavyweight David Epstein resigned 13 months after assuming the role.

Mr Epstein, a former chief of staff to Kevin Rudd during his time as prime minister, was appointed by BHP in September last year to bolster the company's government liaison team following the failed Potash Corp takeover bid.

The $US40 billion bid for Potash Corp failed amid a backlash over foreign ownership from Canadian politicians.

Mr Epstein's departure surprised many within the resources and public relations industry, with several observers suggesting his brief to improve BHP's government relations was still a work in progress.